‘Out of Adversity, Diversity’ Is Lesson From the South Bay

The coming of the movie industry to the South Bay, in the form of a film studio in Manhattan Beach, is good news for an area that suffered more than most from the defense downturn. And that area’s recovery provides valuable lessons for all of Southern California.

The South Bay’s jobs downturn had been severe. TRW, which is selling land to the developers of Manhattan Beach Studios, went from 19,000 employees six years ago to 7,000 only recently.

And every one of the 16 cities making up the South Bay--a vast region stretching from Los Angeles International Airport and the 105 Freeway south to, and partly including, Long Beach--suffered similarly in the 1990s recession. Employment fell by 50%.

But recovery, not recession, is the South Bay story today.

“We’ve seen a reconstitution of the industrial base. And we’re now heading forward,” says Richard Cannon, president of Watson Land Co., a Carson-based development firm that controls 10 million square feet of the South Bay’s 180 million square feet of industrial space.

“The massive capital being invested in infrastructure for international trade is going to keep this area competitive well into the next century,” Cannon adds.

The South Bay has diversified its industry and benefited greatly from the growth of international trade. Its cities have formed public-private partnerships to promote growth. In fact, many of the ingenious moves that companies and communities have made in the South Bay can stand as models for all of Southern California.

Richard Lundquist, president of Continental Development Corp., a major developer along Rosecrans Boulevard in El Segundo--across the street from the site of the new movie studio--faced a big problem in 1991. Some 62% of Continental’s 1.5 million square feet of office space was leased to defense-related companies.

And many of the buildings were leased to a single tenant, TRW in one structure, Xerox in another. As defense work turned down, and restructuring became the rule for all corporations, those big tenants cut back and left Lundquist with empty buildings.

So he responded ingeniously by turning vacant floors into mini-suites of offices linked to shared secretarial and other services so entrepreneurs in fledgling companies and larger firms needing less office space could rent economically. “From one tenant per building, we now have 35,” says Lundquist.

He also has a movie theater complex and a Wolfgang Puck restaurant in Continental Park, the largest office complex in Los Angeles County, which now is only 20% leased by defense companies.

In Redondo Beach, the downturn resulted in half a million square feet of vacant industrial and commercial space. But now that vacancy total is down to 6,000 square feet, reports Aaron Jones, economic development administrator for the city of 64,000.

“We helped former aerospace engineers set up their own firms and companies working with trade moving through the ports and airport,” says Jones.

The city helped with information, not money. Redondo Beach is on the Internet with a Web site providing information to business, and it has electronic permitting. A company can file by computer for city permits and get a quick response in like fashion.

Now the city is backing a 295,000-square-foot office complex for high-tech industry, including an “incubator” in which software entrepreneurs can share facilities.

Torrance, the largest city in the South Bay aside from Long Beach--which is really an economy on its own--has also benefited from the growth of high-tech companies. Davidson & Associates, an educational software company, grew in Torrance even as recession devastated the region; Helisys Inc., which produces computer-aided-design software, was attracted by the city’s economic development department.

But high tech comes in many forms these days. International trade-related companies, which now occupy 40% of South Bay industrial space, do more than simply warehouse goods. Rather, they are part of a new logistics industry. Logistics companies move containers from the ports of Los Angeles and Long Beach, break down and classify their contents, and move goods out to all parts of the United States.

It is a highly automated, technologically rich business and a real growth field for the South Bay, which will benefit from billions of dollars being invested in ports and airports.

Importantly, there is a lot of private money being invested in trade facilities and South Bay industries these days, along with some federal government funds. This is healthy. The area was so vulnerable to the ‘90s downturn because its dependence on government money had sheltered it from economic realities. “We were artificially buoyed up for years by government money,” says Watson Land’s Cannon.

That’s why the South Bay never made efforts to diversify industry or to pursue common interests on a regional basis. Challenged by adversity, however, it has begun to do so. A score of companies and local government representatives formed the South Bay Economic Development Partnership last year. Communities now refer companies to each other.

And into this recovered beehive, the movie industry comes as a new growth opportunity. The area is good for film studios because there is space to build and space for parking, explains Ron Flesch, whose CFN/Flesch & Neuhauser real estate firm is developing Manhattan Beach Studios.

The presence of movie work will accentuate the growing residential economy of the beach cities. And entertainment-related companies undoubtedly will spread to adjacent Hawthorne and other cities.

The South Bay, having learned bitter lessons through eight years of no new construction, is poised for a burst of new development in 1997. Both its lessons and its responses to adversity might be studied by the often-bureaucratic city of Los Angeles and all of Southern California.

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The Bay is Back

The South Bay area, hit hard by the recession in the early 1990’s, has been making a strong comeback. Industrial vacancy rates in the South Bay ’96 (As of Sept. 30): 8.1%

Source: Grubb & Ellis

Researched by JENNIFER OLDHAM / Los Angeles Times